Boot Barn Holdings Inc (BOOT) 2016 Q2 法說會逐字稿

Greetings, and welcome to the Boot Barn Holdings second-quarter FY16 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Jim Watkins, Vice President Investor Relations and External Reporting. Thank you, Mr. Watkins, you may now begin.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn Holdings Inc second-quarter 2016 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer; and Greg Hackman, Chief Financial Officer.

A copy of today's press release is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days in the Investor Relations section on the Company's website.

I would like to remind you that certain statements we will make in this presentation are forward-looking statements and these forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding Forward-Looking Statements that is included in our second quarter 2016 earnings release, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?

Thank you, Jim, and good afternoon. Thanks everyone for joining us. I'm going to start today with a brief review of our consolidated results, followed by a discussion around the key drivers of our core Boot Barn business, then I'll update you on our progress integrating our recently acquired Sheplers business. Following that, Greg will review our financial performance in more detail, and provide our revised outlook for the full year FY16. Finally, we will open the call up for your questions.

In the second quarter, we continued to build market share while achieving 50% growth in sales as compared to the same quarter last year. This growth was comprised of the sales contribution of the newly acquired Sheplers business, 25 new Boot Barn stores opened during the last 12 months, and a 1.6 % increase in same-store sales of the core Boot Barn business, excluding Sheplers.

In the quarter, we faced some of the economic headwinds that many other retailers experienced including the pressure in markets exposed to oil and gas, and those markets that are experiencing declining prices in other commodities. Despite these headwinds, we were able to continue to grow the Boot Barn business within our range of same-store sales guidance, without changing our promotional strategy. We remain focused on executing the main long-term drivers of our business that we outlined to our investors just over a year ago at the time of our IPO.

Given the complexity in this quarter associated with the Sheplers acquisition, we will provide detailed information on both businesses today. As we move throughout the year, we will be reporting on a more combined basis. At this point, I will provide an update on the core Boot Barn business, excluding Sheplers, and also outline the progress we have made on each of our four strategic initiatives.

Our largest growth initiative is to build more stores by both filling in existing markets, and building out developing markets. During the second quarter, we opened 6 new stores. Today, we are opening the last of the 5 stores we had planned for the current quarter, and we remain on track to open 22 new stores in the current fiscal year. Our new stores remain on target to meet our stated hurdle rate of a three-year payback.

Our second growth strategy is to increase same-store sales. The second quarter marked our 24th consecutive quarter of positive same-store sales growth. While Boot Barn sales got off to a solid start in July, comp trends in our core business flattened in August and were slightly positive in September and October.

While we ended the quarter within our guidance on same-store sales, we did experience a sequential deceleration in the core Boot Barn business relative to the first quarter growth which we attribute to the following factors. First, the 15 stores that directly serve the oil-related industries have now turned to a negative comp. Second, we have seen a spillover impact of the softness in oil to stores outside of those 15 stores. And finally, we have seen weakness in some states that rely on mining and certain types of agriculture to support the local economy.

The states that have been hit hardest have been North Dakota, Wyoming, and the more rural parts of Colorado. Same-store sales in Texas also decelerated, but remained slightly positive, while sales at our California stores grew above the Company average.

From a merchandising perspective, we continued to see growth in men's Western categories of boots, hats, and apparel, as well as solid growth in work boots. However, we saw softness in work apparel, particularly flame-resistant merchandise due largely to the pressures in our oil and gas markets.

We believe that the diversification of the Boot Barn business is one of our core strengths, and one factor that has enabled us to continue to grow within a challenging retail environment we are facing. We are diversified from a geographic standpoint, with store locations in 29 states plus our e-commerce channel. We are also diversified from a merchandising perspective, selling mostly Western merchandise, but also work product, both boots and apparel as well as merchandise for men, women, and kids.

Our third growth strategy is to continue to grow our private brands, which continued to increase in line with our long-term penetration target. We also made further strides in our sourcing capabilities, which will support merchandise margins going forward. During the quarter, we successfully completed the consolidation of our four California warehouses into one primary distribution center in Southern California, with minimal disruption to the business.

The final growth strategy is to grow e-commerce. During the quarter, we continued to elevate our e-commerce capabilities through improved merchandising, marketing, and better site personalization, which contributed to double-digit e-commerce growth in the second quarter for bootbarn.com. In addition, our e-commerce merchandise margin rate improved 50 basis points.

Finally, we have commenced the work necessary to consolidate the Boot Barn and Sheplers e-commerce businesses onto common front and back-end platforms prior to the calendar 2016 holiday season. This will create operational efficiencies, as well as allow us to provide a better customer experience.

I would now like to turn the discussion to the Sheplers business. On June 1, we announced the acquisition of Sheplers and outlined the strategic rationale. We're pleased to report that the integration of Sheplers is going well, and we continue to be confident in our strategy.

We accomplished a great deal in the second quarter. We completed the point-of-sale and back-office systems conversion, which gives us visibility into the Sheplers store business. We executed virtually all of the planned expense reductions, and we began the process of resetting the assortments in all of the stores by marking down and beginning to clear out the non go-forward brands and styles and started to layer in the Boot Barn assortment.

In addition, to date, we have completed two of our three rebranding phases, bringing the total number of stores that have been rebranded to Boot Barn to 13. We are on track to complete the rebranding of another 6 Sheplers stores prior to Thanksgiving. The rebranding of the Sheplers stores into Boot Barn is generating excitement at the store level, and further establishing ourselves as the market leader. Sheplers customers are joining the Boot Barn customer loyalty program at high rates, exceeding our expectations.

While still early, the rebranded stores appear to be well received by our customers. We will be providing more detail on the results of the rebranding when we report our third-quarter earnings.

Now turning to the Sheplers e-commerce business. We had anticipated that the Sheplers e-commerce business would experience a high single-digit decline, as the company wrapped up against outsized performance in July and August of 2014, but the business performed better than expected. Importantly, sales accelerated as we moved beyond last year's tough comparison in July and August, with September's sheplers.com booked sales up in the high-single digits for the month.

We continue to expect sheplers.com to be an important growth vehicle, achieving mid high single-digit growth going forward. Similar to bootbarn.com, our merchandise margin rate in Sheplers e-commerce business improved in the quarter.

The Sheplers business was slightly ahead of expectations in the second quarter, and we are on track to realize the $6 million to $8 million of annual synergies we planned. We expect to begin realizing the sales synergies beginning this holiday season, once all the stores have been rebranded to the Boot Barn banner, the store construction is over, and improvements in the product assortment, marketing and in-store experience have taken root.

We've also made good progress toward achieving the merchandise market synergies we believe existed at the time of the acquisition. We've begun to introduce our private brands into the stores, and are also starting to capitalize on our purchasing economies of scale. The benefits of this will roll into our results over the next several quarters. The majority of the expense synergies related to corporate functions has been completed, and will begin to provide financial benefit beginning in the third quarter.

Before turning the call over to Greg to review our financial performance in more detail, I would like to commend the entire team for their hard work and dedication as we continue the integration of Sheplers. Now I would like to hand the call over to Greg.

Thank you, Jim. Good afternoon, everyone. I will begin by reviewing our second-quarter results, and then update you on our revised outlook for FY16. In my discussion, I will be commenting on both actual and adjusted results, excluding any one-time costs, to facilitate comparability. Please reference today's press release for all definitions, and for a reconciliation of GAAP numbers to these non-GAAP adjusted numbers.

In the second quarter, net sales increased 50% to $129.7 million. As Jim mentioned, this was driven by the sales contributions from Sheplers, 25 new Boot Barn stores opened during the last 12 months, as well as a 1.6% same store-sales increase at the core Boot Barn business.

On our August call, we provided our second quarter outlook for same-store sales. I'd like to review our second-quarter results as it relates to those expectations.

The core Boot Barn business achieved a 1.6% same-store sales growth, which was at the low end of our outlook range of low-to mid-single-digit growth. The Sheplers stores same-store sales decreased 2.3%, which is better than our outlook of a mid-single-digit decline. The sheplers.com business declined 5.9%, better than our outlook of a high single-digit decline and consolidated same-store sales increased 0.1%, which was on the low end of our outlook range of low-to-mid-single digit growth.

While faced with a more challenging retail environment, as Jim discussed, we continue to execute our full-priced selling model and did not make any meaningful changes to our promotional strategy. Adjusted gross profit increased 38.3% to $38.4 million, compared to gross profit of $27.8 million in the second quarter of FY15. Our adjusted gross profit rate declined 250 basis points, comprised of a 220 basis point decline in merchandise margin and a 30 basis point increase in occupancy costs.

Merchandise margin declined primarily because of three factors. First, Sheplers stores merchandise margin is lower than the core Boot Barn business. Second, Sheplers e-commerce merchandise margin is lower than the Boot Barn e-commerce merchandise margin, and is lower than the Boot Barn stores margin.

And third, Boot Barn merchandise margin declined 50 basis points, as a result of higher freight, shrink and markdowns related to the sale of clearance merchandise. These declines were partially offset by a higher markup associated with increased private brand penetration.

As a reminder, adjusted gross profit includes an adjustment to normalize the merchandise margin impact of sales of Sheplers discontinued inventory, which is being liquidated to make room for the go-forward Boot Barn merchandise offering.

The adjustment assumes the inventory was sold at the Sheplers historic margin for this product. As we convert the Sheplers stores to Boot Barn's full-price selling model and introduce the Boot Barn merchandise assortment, including our private brands we expect these former Sheplers stores to generate similar merchandise margin rates to the Boot Barn stores in like markets.

Our adjusted operating expense was $32.6 million, which excludes $3 million in costs associated with the acquisition of Sheplers, and a $700,000 loss on the disposal of assets and contract termination costs, this compares to $23.1 million in the prior-year period. The increase is attributable to the operating costs related to the Sheplers store and e-commerce business, and the 25 Boot Barn's stores opened in the past year. We leveraged SG&A this quarter, reducing our adjusted operating expense rate 160 basis points to 25.1% of sales.

Adjusted income from operations for the second quarter of FY16 increased 24.6% to $5.8 million and excludes the acquisition-related expenses and the integration costs, loss on disposal of assets, contract termination costs, and the amortization of the inventory fair value adjustment. This compares to adjusted income from operations of $4.6 million in the prior-year period which includes a $600,000 adjustment to reflect the estimated public company costs as if the Company had been public during that quarter, as well as $900,000 incurred in a prior due diligence process for Sheplers.

Pro forma adjusted net income in the quarter was $1.2 million or $0.04 per diluted share, this compares to $2 million or $0.08 per diluted share last year. As a reminder, pro forma adjusted interest expense was $2.4 million higher or $0.05 a share higher than pro forma adjusted interest expense last year. The prior-year net income has been adjusted to reflect the estimated public company costs, and the impact of the post-IPO interest expense.

As Jim mentioned, we opened six new stores during the second quarter, and closed one Boot Barn store. As of today, we have opened 5 stores in the current quarter, and remain on track to open 22 new stores in the current fiscal year.

We closed five low-volume Sheplers stores during the second quarter. One Sheplers store will not be rebranded to a Boot Barn store, and will close after Christmas. Those six Sheplers stores had sales of $8.7 million in the 12 months preceding the acquisition, and less than $400,000 of four-wall EBITDA.

Turning to the balance sheet. As of September 26, 2015, we had $7.5 million of cash and cash equivalents. Our outstanding borrowings on our revolving credit facility were $69 million, and we have $199.5 million outstanding on our term loan.

Inventory rose 49% to $178 million compared to a year ago, this increase is primarily driven by a 27% increase from the addition of the Sheplers business, a 15% increase for the new stores added in the last 12 months and a 5.6% increase in average inventory per Boot Barn store to support our same-store sales growth and our private brand growth initiative. We are also investing in increased levels of inventory at the Sheplers stores, as we prepare for rebranding, which feature an increase in boot inventory, and our private brands. We feel good about our inventory level as we come out of the second quarter and move into the holiday selling season.

Now I would like to turn to our current outlook for FY16. In light of the market headwinds we are facing, we are revising our outlook downward for the remainder of the fiscal year. That said, we continue to expect positive same-store sales growth for the combined business.

Our outlook for the Sheplers business remains unchanged, but we are lowering our legacy Boot Barn same-store sales growth to flat to the low-single digits. We now expect FY16 pro forma adjusted income from operations to be between $46.5 million and $48.5 million. Adjustments will be made to exclude acquisition-related integration expenses from the Sheplers acquisition.

We now expect pro forma adjusted net income for the full fiscal year to be between $20.5 million and $21.7 million, this represents pro forma adjusted earnings per diluted share in the range of $0.76 to $0.80 per share, based on an estimated weighted average diluted share count of 27.1 million shares for the fiscal year. For the third quarter specifically, we expect pro forma adjusted earnings per diluted share to be between $0.47 and $0.49 per share, based on 27.2 million weighted average diluted shares outstanding.

For the full year, we expect FY16 capital expenditures to be approximately $33 million, which includes $13 million related to the Sheplers stores. We expect our FY16 interest expense to be approximately $12 million, and our effective tax rate to be approximately 40.6%.

Now I would like to turn the call back to Jim for some closing remarks.

Thank you, Greg. This is an exciting time for us at Boot Barn as we complete the rebranding of Sheplers, begin to leverage the strength of its e-commerce infrastructure, and further strengthen our competitive positioning. I am pleased with how the entire organization is executing as we face some near-term challenges, and I feel we are well positioned for sustainable long-term growth.

Now I would like to open up the call to take your questions. Manny?

(Operator Instructions)

Peter Keith, Piper Jaffray, please go ahead.

I was hoping you could help us understand some of this deceleration in the business. You had talked about the 15 oil and gas stores are now negative.

Could you give even us a little more detail perhaps on how negative that is, and then also on Texas if that is still positive? Is that is in line with the core boot business at this point, or is that starting to trend below?

So we went from the first quarter to the second quarter, we had about 400 basis points of deceleration. And the 15 stores have turned negative. We don't intend to provide specific numbers relative to that. We have seen other markets or other stores outside of those 15 have sort of a spillover effect.

Texas is a portion of that, so Texas has decelerated. It is slightly positive, and then there was a couple of other states that felt under pressure due to non oil and gas but other commodities. And as we called out in the script, that was parts of North Dakota outside of the oil and gas piece, a good portion of Wyoming and a portion of Colorado.

Okay. We have had a significant amount of warm weather the last few months, and that's been called out by a number of retailers. Did you feel that that impacted your business in any direction in recent months?

Probably, our outerwear business has been difficult, our work apparel business, which is a good portion of that is coat, has been difficult. It's hard to separate the impact of weather specifically versus some of the other headwinds. But I would contend that weather probably had some piece of the deceleration as well.

Okay. On the merchandise margin pressure you saw in the core boot business, I guess it was about 50 basis points with some freight and shrink. How should we think about that markdown and merchandise margin risk looking forward for the rest of the year? Do you have a potential markdown risk post-holiday if things don't pick up, or is there anything that changes out of Q2 as we look to the back half in terms of the merch margin trajectory?

Peter, it's Greg. Our aging profile looks a lot like last year. We had just a slight bit more of aged goods entering the second quarter, and we exited the second quarter with slightly lower inventory of aged goods. So we feel very good about how, quote, clean or current our inventory is.

And just as a reminder, over 70% of our inventory is on a replenishment model. It's boots, it's denim, low fashion risk, low markdown risk. So I don't believe that you need to model in any increased markdown risk go forward.

Okay. Lastly for me, just looking at the Sheplers business, it's great to see that those are trending to plan. If we look back at your two prior acquisitions with Baskins and RCC, I'm curious on the trough, the peak comp trajectory.

Did those take some time to build in terms of same-store sales, or did they -- post-rebranding, immediately move to the mid-single-digit and hold that rate? Just trying to contextualize that for how Sheplers might trend over the coming year.

I don't think we've ever really disclosed those numbers specifically. It's complicated for a couple reasons. One, the two acquisitions operated or acted differently.

The RCC business acted a little differently than the Baskins business, Baskins being more recent. It did have a trough followed by an increase, and then that increase built over a few successive quarters. It would be difficult to scale that specifically for you on the call, but it did build over time at Baskins.

Okay. Well thanks for answering my questions, and good luck with the rest of the year.

Thank you.

Thanks, Peter.

Matthew Boss, JPMorgan, please go ahead.

Can you guys talk about the performance of your new stores versus the older stores? And more so, anything that you've seen to lead you to believe that you should slow the pace of growth given what we've seen?

Matt, it's Greg. Our new stores continue to meet our three-year payback, And we feel like there's still a great opportunity to continue to expand. So our plan is to continue to grow units at 10% for the foreseeable future.

Great. And then just a follow up. Aside from the oil and [package] stores, what is the best comp to think about at the core Boot Barn business? Meaning, have you seen any signs of stabilization? Just trying to think about beyond this year, what is the best way to think about the underlying core Boot Barn business?

I would probably refer back to our long-term outlook, and I think that is still intact in terms of same-store sales in the low-to-mid-single digits. That's part of the business model that we came to market with about a year ago, and I still think that's still a good way to think about the growth trajectory of the core business.

Okay, great. And then any signs of stabilization post the quarter?

We commented a bit that September and October were in line with each other, so yes, I suppose you could read into that there's been a bit of stabilization.

Great. Best of luck.

Thanks.

Jonathan Komp, Robert W. Baird, please go ahead.

Maybe, Jim, first, just following up on a comment you just had. Looking longer-term at low-to-mid same-store sales for the business, any thoughts on when you might be able to return to that level for the core business?

And as you called a few of the impacts you are seeing in oil markets and other commodity markets. Maybe any thoughts on the duration of which how long those might impact the business? And any high-level thoughts there would be appreciated.

Sure, thanks. On the second piece, it is hard to forecast how long the headwinds will last, and each of them are a little bit different in different parts of the country. So we will manage through it, and looking for growth in different areas to offset some of the headwind.

In terms of the long-term outlook, we would love to be able to return back to a 7% or a 5% comp. We are, even in this quarter, we were in the range in our view of low-to-mid for the core business. So as we look forward, we think if you were modeling Boot Barn and modeling Boot Barn's core business just like we said last year, I think we, over a long period of time, are a low-to-mid single-digit grower on a same-store sales business, including e-comm.

Got it. And then maybe more near-term as you look to the holiday period coming up. It sounds like maybe September or October of the core business is tracking slightly positive, maybe towards the lower end of your flat to low single-digit outlook for the quarter. Any thoughts on specific initiatives that you are planning to help drive the business, or any internal factors that you think could help offset some of the external headwinds?

Sure, great question. So that is what we worked on virtually every day. So from a merchandising perspective, we are looking for growth in a number of areas.

We've launched a new line or collected a few different pieces of our assortment around performance. So that could be performance apparel and performance boots, both work and Western. We've done some things in terms of ladies boots around bootlets and adding fringe to our assortments.

We've really expanded the front door to the store in terms of our jewelry assortment and some accessory items. We've put some increased emphasis on the Christmas shop and Christmas decor within our stores for this upcoming holiday season. Those are mostly merchandising related.

From a stores perspective, we've just rolled out a new sales training program to all 200 plus stores, including the Sheplers stores. That we hope will help convert the traffic that we are getting in the stores.

And I'd say probably from a marketing perspective, just to round out the thinking, we've really placed a lot more emphasis on our loyalty program and how we can really convert the rewards members to use more of their rewards, to be engaged more in the program. So they can build up points, they could convert it to merchandise credits, and then use those credits in the store.

I think that has two pieces. One is, help us build sales, and two is, help us continue to take market share by establishing more loyalty to Boot Barn. We're working on a number of different fronts across virtually every functional area to find opportunities for growth.

Got it, that's helpful. And then maybe one more for Greg. Just trying to reconcile the change in guidance for earnings for the year. I know you're pointing now to $0.76 to $0.80 in adjusted net income per share on a low single-digit comp.

And I think previously it was $0.85 to $0.90 on a low-to-mid single-digit comp. So I'm just wondering if you still do a low single-digit comp, why the earnings range is now adjusted lower than the $0.85 low end you previously had for earnings?

I think a piece of this is conservatism given we are guiding it flat to low, versus -- when we think of low, we think of [$0.01] to [$0.03], and when we think of mid we think of [$0.04] to [$0.06]. So we had modeled something in that range, if you will, and now with being the bottom, that's I will say conservatism.

Okay. And maybe one more looking ahead to 2017. I know, obviously, a difficult question given all the top line volatility. But if you got back to more of the normalized low-to-mid single-digit comp, is there any reason to think that if you have the core business growing in the 20% range plus accretion from Sheplers to be even higher than that,, is that still a reasonable framework to think about a potential scenario for 2017, or has anything shifted in the broader thinking there?

I would say there's nothing structural that has changed. We haven't begun to work on our FY17 plans and guidance. But when we went public a year ago and we laid out our thesis, if you will, there is nothing structural that changed from if we can comp up low-to-mid single-digits and grow units by 10% that we can't get that same net income growth.

Okay, great. Thank you very much.

Paul Lejuez, Citigroup, please go ahead.

Just wondering, what are your expectations for the sheplers.com business? Once you rebrand the Sheplers stores and lose that store connection with customer, do you expect to have to kick up marketing spend to keep that business growing?

At some point, do you maybe direct that sheplers.com customer to the Boot Barn website? Just trying to think of how that will work itself out. Thanks.

I think when we think about sheplers.com going forward, I think it is a mid-to-high single-digit growth business separated from the stores. We're operating the brands pretty much entirely separately, so the sheplers.com customer and the Boot Barn store customer are effectively two different groups, and we're marketing and merchandising to of them separately.

I think as we rolled into September, it was nice to see the sheplers.com demand go back up to a high single-digit number. And we expect that mid-to-high going forward, over our long-term is the right way to think about it. Regardless or even after the Sheplers stores are fully rebranded to be Boot Barn.

What percent of overlap is there between the sheplers.com business and the Sheplers stores? Just on a customer [shop both].

I don't have a specific number for you, it's a relatively low portion of the customers shop both channels. And the sheplers.com customer, while there are pockets around the stores, there is also lots of sheplers.com customers in lots of rural markets around the country.

Got you. Then just last one for Greg. The pressure from shrink, was that a one-time true up where the pressure going forward would be less, or should we expect to see similar pressure in future quarters?

Great question. I believe it is a one-off, the Company used to conduct inventory semiannually. And in Q2 of last year, we recorded, I'll say, a benefit or less shrink expense as a result of that physical inventory true up. We have since migrated to an annual physical inventory, and so we did not get the benefit of that true up in Q2.

Got you. Okay, thanks, guys, and good luck.

Thanks, Paul.

Mitch Kummetz, B. Riley, please go ahead.

Jim, you mentioned that there was a spillover effect in the quarter. Is there any way you could try to quantify the number of stores that were impacted by that spillover effect?

It's very difficult to give you a specific number, Mitch. I think when we look at certain states that have had either less of a growth or a bit of a decline, it's hard to count up which stores are specifically related to spillover in oil and gas, which stores are specifically related to weather or other factors. I think it would be too hard for us to be that precise.

Okay. I think you mentioned from a merchandise standpoint that work apparel was the softest category in the business. Is there any way that you can parse out comp if you were to X out that piece of the business? Can you remind us maybe what percent of your overall mix work apparel represents?

Work apparel is maybe a mid single-digits portion of our business. It's decline is not going to explain the entire deceleration. But the way we look at the business now is when we go department by department.

Work apparel took a step down with a decline that was pulled down mostly by flame resistant, but also non flame resistant versus regular typical work apparel was also down. But admittedly, the other departments, while most of them were still growing, they were growing at a slightly higher rate. So I think it was those two factors combined that led to the deceleration from the [5.6%] to the [1.6%].

Okay. Then on the updated guidance, we can obviously back into a Q4 outlook, which I'm coming up with a range of $0.13 to $0.15 on the earnings line, which is a little bit down from what you guys reported last year. Is there any way you can provide a little bit more color in terms of what you're thinking on the fourth quarter, either by comp or margins or something to explain why you would expect the earnings to be down year over year?

A piece of that is definitely our assumption being flat to low single digits. And as I cited, our interest expense was higher in Q2, that will continue as a pressure point for Q3 and Q4 as well. And finally, we don't get as much leverage on the occupancy and SG&A line with a flat comp as opposed to a plus [3%] or [4%], something like that.

Got it. All right. Thanks, good luck.

Thank you.

Thanks, Mitch.

Corinna Freedman of BB&T, please go ahead.

I wanted to circle back on your comments about inventory. I think you indicated a 5.6% increase of the core Boot Barn brand, and I think you also mentioned you are building some boot inventory, some private label.

Is there something in the results now that's causing you to chase this business? Is this a net increase, or are you just replacing branded with private?

Well, we continue to grow our private brand assortment, and that is really done to fill gaps in -- to service the customer, if you will. So we have expanded or continued to increase our penetration of private brand, I'm not sure if that answers your question or not.

Okay. And then any comp trends by category, boots, apparel, accessories, [home] that you could share with us?

Sure. The boots business was still up, work boots were up solidly, men's Western boots were up very solid. The apparel business was dragged down mostly by work apparel, and the biggest drag was the flame resistant part of that piece of the business. Some of the initiatives we have for the front door to the store have paid off. That business was up, and accessories in total was up.

So it's just a little bit less up than in past quarters, of course. But with the exception of work apparel and a little bit of softness in ladies denim, which is a relatively small portion of our business. The rest of the categories were either flat or a little bit up.

Great. I wonder if you could also give us an update on the IMAP impact that you've seen on Sheplers conversion? I know you've said it's going better than you expected, but was there any quantifiable impact on conversion or traffic?

That's a great question. We had called that out on our last call, and said that while it might create some short-term headwinds, we thought it was a good thing for the business overall. We continue to believe that to be the case.

As we think about the second quarter, the Sheplers business returned to growth in September as we expected, sheplers.com that is. Bootbarn.com grew also in double digits.

Both businesses had an increased merchandise margin rate. We believe part of that is associated with IMAP. So as we had said back in August, we had expected that IMAP would be a good long-term thing for the business. I feel equally confident about that today, and I think some of the things we've seen play out in the second quarter would demonstrate that.

Great, thank you.

Thank you. I would now like to turn the conference over to back to management for any additional closing remarks.

Thank you, everyone, for joining the call today. And we look forward to speaking with you all in the coming weeks. Take care.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.